Glossary

Administered prices: The prices that are set by management decision rather than by negotiation between buyer and seller. Management sets most retail and industrial prices though they will be altered in response to the competition.

Ad valorem tax: A tax proportional to the price of the object being taxed. It is a common form of sales tax and is often preferred to specific taxes. They are also preferred since their real value is not eroded by inflation.

Ageing populations: The population ageing is represented by an increase in relative number of older persons in a population and is associated with an increase in the median age of the population. The age structure of a population is determined by its mortality, fertility and net migration.

Agricultural subsidies: Agricultural subsidies refer to payments made to farmers for the purpose of encouraging food production and supporting the incomes of farmers.

Appropriate technology: The application of a technology that is appropriate for the factor endowments that exist. For underdeveloped countries with a large labour force and less capital, labour intensive technology is most appropriate.

Balance of payments: The balance of payment is an accounting statement that records transactions (trade in goods, services and financial assets) between a country’s residents and the rest of the world. Those transactions include receipts and payments—credits and debits that are recorded through the use of double entry bookkeeping.

Balance of trade: A nation’s balance of trade, also called net exports, is a measure of the net flow of goods and services between that country and the rest of the world. Given domestic output (Y), domestic spending on domestic output (D), exports (X) and imports (M), the balance of trade is B = Y − D = X − M.

Base period: A point in time used as a reference point for comparison with some later period.

Basic exports: The name given to primary products produced by underdeveloped countries for export.

Brain drain: The brain drain refers to the migration of educated and skilled labour from poorer to richer countries. Those with skills and education move to more developed countries where the return to human capital is high.

Budget: A statement of a government’s planned receipts and expenditures for some future period, normally a year. A statement of actual receipts and expenditures for the previous period usually accompanies this.

Budget deficit: The excess of a government’s total expenditure over its income. This has to be met by borrowing, which increases government debt.

Buffer stocks: The buffer stocks refer to stocks of a commodity held in an attempt to even out price fluctuations in primary commodities. The operators use these stocks to mitigate fluctuations in prices by selling from the commodity stock when prices are high and buying the commodity stock when prices are low.

Bullion: Precious metals such as gold or silver, which are held in bulk in the form of ingots or bars. Gold bullion is used for international monetary transactions between banks and governments.

Capital: The capital can mean many things, including a sum of money, an invested fund, a set of produced means of production or human skills (human capital). Capital is an accumulable factor of production as opposed to land and simple labour, which are not.

Capital flight: The capital flight is generally defined as an outflow of funds from a country, motivated by an adverse change in the country’s economic, political or social environment.

Capital formation: The process of increasing the amount of capital goods in a country. It results from savings and productive investments.

Cash crops: The term refers to crops grown by peasant farmers, specifically for sale in the market as opposed to crops that are directly consumed for subsistence purposes.

Casual labour: A person casually engaged in others’ farm or non-farm enterprises (both household and non-household) and getting in return wages according to the terms of the daily or periodic work contract.

Closed economy: An economy with no external trade and which is completely self-sufficient and insulated from external forces.

Commercial policy: It encompasses instruments of trade protection employed by countries to foster industrial promotion, export diversification, employment creation and other development oriented strategies and includes tariffs, quota and subsidies.

Consumption: The personal expenditure of individuals and families that involves the selection, usage and disposal or reuse of goods and services.

Convertibility: An attribute of a currency, which is freely exchangeable for other currency or for gold.

Currency appreciation: An increase in the value of one currency in terms of other currencies.

Currency depreciation: A fall in the value of one currency in terms of other currencies.

Customs union: A union established with two or more countries when all barriers to the free exchange of each other’s goods and services are removed and a common external tariff is established against non-members.

Development economics: A field of study devoted to understanding the economic experience of less developed countries and attempts to address the priorities and challenges faced by these countries.

Development planning: A plan with a broad set of objectives intended to develop the economic and social potential of either the economy as a whole or a specific area. Such plans are of long term and countries like India have used five years as the time period for their plan.

Development strategy: The approach taken to the problem of underdevelopment, which will depend on the particular growth model being used.

Dualism: The coexistence in one place of two situations that are mutually exclusive—extreme poverty and affluence, modern and traditional sectors, or universal education among a few and mass illiteracy.

Dumping: The export of a commodity, at below cost or at a lower price than sold domestically.

Economic crisis: A period when good times turn quickly into bad times, when economic agents panic, leading to dislocation. There are various types of economic crises ranging from cyclical crisis, structural crisis and financial crisis.

Economic development: The process of improving the standard of living and well-being of the population of developing countries by raising the per capita income. This is usually achieved by an increase in industrialization rather than relying on the agricultural sector.

Economic planning: The institutional co-ordination of economic activities that seeks to determine the volume and nature of final output by allocation of factors of production between alternative uses.

Employment: A measure of the number of people gainfully employed in a country. The employed comprises all those who are engaged in regular, casual or self-employment.

Euro: The common currency of the European Union. Euro became the national currency of 12 European Union countries in 2002.

Exchange rate: The rate at which central banks will exchange one country’s currency for other.

Exit policy: It refers to the right of an industrial unit to close down. The phenomenon is usually associated with sick industrial units.

Export-led growth: The expansion of an economy, which is stimulated by a rising value of exports.

Export promotion: The policies that reflect the measures taken by national governments to stimulate exports. Subsidies, tax exemptions and special credit lines are the main instruments used to promote exports.

Fiscal federalism: The system of sharing tax revenues and public expenditure between central and regional governments. Revenue may be raised by the upper level of government and grants given to lower levels on the basis of population, or other criteria, or revenues from specific national taxes may be shared in agreed proportions.

Fiscal policy: The use of taxation and government spending to influence the economy.

Fixed exchange rate: A rate of exchange of one country against another, which cannot fluctuate and can only be changed by devaluation or revaluation.

Flexible exchange rate: The exchange rate of a national currency that is free to move up and down according to shifts in demand and supply arising from internal trade and finance.

Foreign exchange market: A network of commercial banks, investment banks, brokerage houses and other financial institutions that buy and sell currencies for profit.

Foreign reserves: The holding of gold and foreign assets, such as foreign government bonds and foreign currency, by a country’s central bank or monetary authority.

Global warming: The burning of fossil fuels increasing the quantity of carbon dioxide in the atmosphere, causing the earth to warm up. There are fears that this would cause large-scale climatic changes and raise the sea level through melting the solar ice caps, with catastrophic effects.

Globalization: The process by which the whole world becomes a single market, which means that goods and services, capital and labour are traded on a worldwide basis and information and results of research flow readily between countries.

Grants in aid: The grants made by the central government to state governments or local bodies to supplement their revenue from levying of taxes.

Green revolution: A term applied to the major increase in agricultural productivity obtained in developing countries by the introduction of high-yielding disease-resistant seeds. It is applied to rice and wheat in particular.

Gross Domestic Product (GDP): The value added of all goods and services produced in a given period of time within a country.

Gross investment: Investment expenditure inclusive of replacement of worn out and obsolescent equipment.

Gross National Income (GNI): The total value of final goods and services produced within a country’s border in a year, thus, the country’s Gross Domestic Product (GDP) minus its net foreign assets.

Gross National Product (GNP): The total market value of all final goods and services produced in an economy, including net factor income from abroad during some period of time, usually a year.

Hard currency: A currency which is convertible into other currencies and whose price in terms of other currencies is expected to remain stable or to rise.

Human Development Index (HDI): The Human Development Index, a composite index measuring average achievement in three basic dimensions of human development—life expectancy, literacy rate and standard of living.

Hedging: The process of using derivative financial instruments to reduce the price risks, that either arise in course of normal business or are associated with investments.

Hindu rate of growth: A term coined by the Late Prof. Raj Krishna to denote the dismal rate of growth of Indian economy at the rate of 3.5 per cent for a number of years after Independence.

Human capital: The investments that are made in human resources so as to improve their productivity. It is the skills and knowledge embodied in the labour force.

Import substitution: Also referred to as import substitution industrialization, it is a set of policies to promote a country’s economic industrialization by encouraging domestic production and discouraging imports of consumer goods.

Indicative planning: The indication of a series of goals by the government and indirect stimulation of certain economic activities through taxation or monetary policy to accomplish planning by inducement.

Industrial policy: The government policy towards the establishment of industries, their working and management, including the issues of nationalization or privatization.

Infant mortality rate: Deaths among children between birth and one year of age per 1,000 live births.

Infant industry: An industry in its early stages of development whose share of its domestic market is currently small due to competition from overseas competitors. It can be argued that for such an industry, tariffs will be beneficial so that they are protected from international competition.

Inflation: The inflation can be defined as an overall increase in the general price level of goods and services measured against a standard level of purchasing power.

Infrastructure: The structural elements of an economy, which facilitate the flow of goods and services between buyers and sellers. These facilities are usually, though not necessarily, provided by public authorities and are regarded as pre-requisite for economic growth.

Integrated rural development: The broad spectrum of rural development activities, which include provision of physical and social infrastructure, development of rural non-farm industries and capacity of the rural sector to sustain and accelerate the pace of these improvements.

Intellectual property rights: The rights of artists or inventors to get legal protection against unauthorized copying of their work. These consist mainly of copyrights, trademarks and patents.

International Monetary Fund (IMF): The international institution created under the Bretton Woods system for the purposes of overseeing and ensuring that nations followed a set of agreed-upon rules of conduct in international trade and finance, and for providing borrowing facilities for nations to tide over temporary balance of payments difficulties.

Labour force: The total number of people in a country who are either in work or unemployed but looking for work.

Labour force participation rate: The ratio of economically active (employed or unemployed) population falling within that category to the total population of that category.

Land reform: The possibilities of obtaining increases in prosperity in rural areas, usually in developing countries, through changes in the institutional arrangements in the agricultural sector.

Literacy rate: The percentage of population of age 15 and above who are able to read and write. It is one of the important social and economic indicators of the state of development.

Macro-economic instability: A situation in which a country has a high rate of inflation accompanied by rising budget and trade deficits and rapidly expanding money supply.

Market failure: A phenomenon that results from the existence of market imperfections that weaken the functioning of a free market economy. It often provides justification for government intervention in the working of a free market.

Market prices: Prices established by demand and supply in a free market economy.

Merger: An amalgamation of two or more firms where the respective share holders agree to combine their equity capital to form a single new company.

Mixed economy: A market economy in which both private and public enterprises participate in the economic activity though not necessarily in all sectors, some of which may be reserved for public monopoly.

Monetary policy: The use by the central bank of interest rates or controls on the money supply to influence the economy. The target of the monetary policy may be the achievement of the desired level or rate of growth in real activity, price level, exchange rate or the balance of payments.

Multinational corporation: An international or transnational corporation with headquarters in one country but branch offices in a wide range of both developed and developing countries.

Net present value: The sum that results when the discounted value of the expected costs of an investment is deducted from the discounted value of expected returns.

Normative economics: The aspects of economics concerning how the economy ought to be run. The main considerations are efficiency and equity.

Open economy: An economy that engages in international trade. These may include trade in goods and services, movements of capital, transfers of information and technical know-how, and migration of labour.

Organization for Economic Co-operation and Development (OECD): An organization of 20 countries from the western world including all of those in Europe and North America. Its objective is to assist economic growth of its member nations.

Organization of Petroleum Exporting Countries (OPEC): An organization of oil exporting countries that acts as a cartel or oligopoly to promote their joint national interests.

Planned economy: An economy where crucial economic processes are determined to a large extent not by market forces, but by an economic planning body which implements society’s major economic goals.

Positive economics: The study of economic propositions that can at least in principle be verified by observation of events or states of the real world without reference to value judgements.

Privatization: A policy of converting public ownership of an asset to private ownership or of permitting the performance of a certain activity, hitherto carried out by the department of a public organization, by a private sector business.

Property rights: A person’s ability to own, transfer and use that which a person owns without government coercion.

Public Distribution System (PDS): The distribution of essential commodities through fair price shops at government-controlled prices.

Public finance: The study of economic activities of governments. These activities are expressed mostly through budgets and it is the taxes and expenditures that comprise budgets that are the main objects of fiscal theorizing.

Public good: A commodity or service, which if supplied to one person, is available to others at no extra cost.

Recession: The declining phase of a business cycle, when seasonally adjusted output falls significantly and unemployment increases though by no means in every industry.

Regular employed: Persons working in others’ farm or non-farm enterprises, both household and non-household, and getting in return salary or wages on a regular basis (and not on the basis of daily or periodic renewal of work contract).

Remittances: Money earned by foreign-born or immigrant workers in one country but sent to family, friends, business associates or others in the home country.

Rent seeking: Spending time and money not on production of real goods and services but by trying to make a government change the rules so as to make one’s business more profitable. It can take various forms like seeking subsidies, persuading a government to change the rules to keep out competitors or promoting collusion between those already engaged in the activity.

Self employment: An individual who is self employed works for himself or herself rather than as an employee of another individual or organization, obtaining an income through ownership of business or professional practice in which he or she contributes much of the labour needed to produce or distribute a good or service.

Self-sustaining growth: Economic growth that continues over the long run based on savings, investment and complementary private and public activities.

Shadow price: An imputed valuation of a commodity or service, which has no market price.

Social safety net: A set of government programmes, such as welfare payments, free health clinics and unemployment insurance, which are intended to provide to the poor a minimal standard of living.

Special Drawing Rights (SDR): A form of international financial asset, which is also known as paper gold, created by the International Monetary Fund in 1970 and is used to supplement gold and dollars in settling international balance of payments accounts.

Special Economic Zones (SEZ): Regions designated for economic development oriented towards inward Foreign Direct Investment (FDI) and exports, both fostered by special policy incentives are Special Economic Zones (SEZ).

Stagnation: A condition of an economy in which its rate of total output or per capita output growth is at zero or close to zero for a relatively long period of time. Stagnation is sometimes characterized by a high rate of employment.

Structural adjustment loans: Loans by the World Bank designed for structural adjustment in LDCs (Less-Developed-Countries) by supporting measures to remove excessive government controls, getting factor and product prices to reflect scarcity values and promoting market competition.

Structural transformation: The process of transforming the basic industrial structure of an economy so that the contribution to national income by the manufacturing sector increasingly becomes higher than by the agricultural sector.

Sustainable development: The maximization of the net benefits of economic development, subject to maintaining the services and quality of natural resources over time.

Tariffs: Discriminatory taxes collected on imported goods but not levied on similar goods originating domestically.

Technological progress: Increased application of new scientific knowledge in the form of inventions and innovations with regard to both physical and human capital. It has been a major factor in stimulating the long-term economic growth of contemporary developed countries.

Terms of trade: The unit value of the exports of the country divided by its unit value of imports.

Trade deficit: A deficit on flows of goods and services in a country’s international balance of payments. It occurs when a country imports more than it exports.

Trade liberalization: Removal of obstacles to free trade, such as quotas, nominal and effective rates of protection and exchange controls.

Unemployed (Current Daily Status): The current daily status rate is the ratio of unemployed days per week (seeking or available for work) to the total labour supply per week (working plus seeking plus available days). Here the activity status is calculated for all the seven days in a week on the basis of whether one is unemployed for a full day (more than four hours) or half a day (less than four hours).

Unemployed (current weekly status): A person who has not worked for even one hour on any one day of the week, but has been seeking or has been available for work at any time for at least one hour during the weekdays is considered seeking or available for work.

Unemployed (usual status, principal status): A person is considered seeking or available for work or unemployed if the person was not working but was either seeking or was available for work for a longer time during the past year.

Unemployment rate: The percentage of unemployed persons in the total labour force.

Uruguay round: It took place between 20 September 1986 and 15 December 1993, and was a total of eight rounds of multilateral trade negotiations conducted under the General Agreement on Tariffs and Trade (GATT).

Value added tax: A general tax applied at each point of exchange of goods or services from primary production to final consumption.

Wage goods: Goods ordinarily demanded at low levels of income.

Wage-price spiral: The tendency during inflation for wage increases to lead to price increases and for price increases to lead to wage increases, thus creating an inflationary spiral.

Welfare economics: It is a normative branch of economic theory that attempts to assess the implications of laws and institutions, including market outcomes for human well-being.

Work participation rate: The percentage of workers to the total population.

World Bank: The international institution established after World War II to provide long run development assistance to developing nations.

World Trade Organization (WTO): The organization set up at the Uruguay Round to replace the General Agreement on Tariffs and Trade (GATT) Secretariat with authority over trade in industrial goods, industrial commodities and services and with greater authority to settle trade disputes.